How to Pay Less in Taxes Through Tax Residency in Georgia

By obtaining tax residency in Georgia, you can dramatically decrease your taxes.

Dateline: Tbilisi, Georgia

We all want to (legally, of course) finds ways to pay less in taxes each year. For many of us, that means establishing our homes and/or businesses in low-tax countries. The good news is that most countries with low-tax systems are actively trying to attract wealthy individuals and the business expertise that they bring.

Georgia is a perfect example of this.

While it’s definitely not a tax-free country in the same vein as Panama, the British Virgin Islands, Brunei, or the Cayman Islands, it is what we define as a low-tax country. It has one of the world’s simplest and most liberal tax regimes, and the authorities have made it fairly easy to establish tax residency.

Georgia is an especially prudent place to become a tax resident because the government only taxes local source income. The money you earn outside of Georgia will be 100 percent yours to keep, so if you can limit the proportion of your total income earned in Georgia you will definitely pay less in taxes, and possibly nearly eliminate your tax obligations entirely.

Why You Should Become a Tax Resident in Georgia

First off, Georgia has low taxes compared to its counterparts in Europe. What’s more, income is taxed at a flat rate which is lower than that of every OECD member except for Hungary. It’s corporate tax rate is significantly lower than those of the United States, France, Belgium, Mexico, and Portugal (though, to be fair, it is still a lot higher than the rates you’ll find in Switzerland, Ireland, and Germany).

Rates for different activities are as follow:

Income Tax: 20 percent

Value-added Tax: 18 percent

Corporate Tax: 15 percent

Capital Gains and Interest: 5 percent

Property Tax: 1 percent

Under Georgian tax law, in addition to income from employment, income tax covers “income from economic activities.” These activities include the following:

Income received from supply of goods and/or services

Gain received from sale of assets

Income received as a result of limiting economic activities or closure of an enterprise

Income received from sale of fixed assets

Dividends, royalty and interest income, except interest received by individuals on the funds deposited at banks and other credit entities

Rental and leasing income

Benefit received as a result of debt write off, etc.

Establishing tax residency in Tbilisi now means that you’ll have the option of e-filing, making it much easier to pay taxes than it was previously. Tax residents can also pay their tax bill electronically on the Revenue Service’s website.

The government is currently developing an overhaul of the country’s corporate tax regime so that businesses will pay less in taxes than they currently do. Modeling its reforms on the Estonian tax system, Georgia plans to exempt all retained and reinvested profits from the 15 percent corporate tax.

That would mean that only profits that are distributed or paid out as fringe benefits will be taxable. In addition to the obvious benefit to businesses, research has shown that such a system brings economy-wide benefits as well.

A 2011 paper by Masso, Merikull, and Vahter found that Estonia’s introduction of corporate tax reforms in 2000 led to a higher investment rate and enhanced productivity. What’s more, providing incentives for companies to retain their profits increased holdings of liquid assets and reduced dependency on debt financing, which helped the country weather the financial crisis of 2008-2009.

In short, Georgia’s tax regime is already friendly toward individuals and businesses. If reforms are implemented from January 2017 as planned, the situation will only improve.

Eligibility for Tax Residency in Georgia

The process is pretty simple. Any individual living in Georgia for 183 days during a consecutive 12-month period is eligible to apply for tax residency. In most cases these applications are accepted.

Of course, you may not be able or interested in spending half a calendar year in Georgia. Fortunately, the government has created a special regime for those designated as “high net-worth individuals.”

Someone is considered to be high net-worth if: 1) the value of his/her confirmed property is greater than GEL3,000,000 (approximately $1.35 million USD); or 2) his/her annual income exceeded GEL200,000 (about $90,000) in any of the three years before the year they submit the application.

There are a few other conditions that must be met, however. The applicant must have either a Georgian residency permit or Georgian nationality … OR, the applicant must verify receiving at least GEL25,000 (just over $11,000) of Georgian source income during a single year.

Bear in mind that obtaining a Georgian residence permit is fairly easy for someone earning Georgian-source income in any significant amount, so the first option is practicable in most situations.

How to Obtain Tax Residency

Georgians really don’t stand for red tape, and this process reflects that preference. Applications are submitted to the Revenue Service of Georgia along with documents confirming that the application meets all other requirements.

If the application meets all the legal requirements, the Revenue Service forwards the application to the Ministry of Finance for final approval. A decision must be made within nine days from submission of the application, and the applicant’s presence in Georgia is not required at any time during the process.

Georgian tax residence is granted for a one-year term. If a high net-worth individual wants to maintain Georgian tax residency status, he/she must re-apply. However, re-application is not required for individuals who become tax residents under the general rules on tax residency (by spending at least 183 days in Georgia during the relevant period).

Other Advantages of Georgian Tax Residency

In addition to the tax benefits of establishing your home and/or business in Georgia, Georgian tax residence offers potential benefits to those earning income in countries with which Georgia has bilateral tax treaties.

For example, in some cases a treaty partner country may not tax dividends received by a Georgian tax resident, even if those dividends come from a source in the treaty partner country.

If you’re considering whether to apply for Georgian tax residency, you should first take a close look at the bilateral tax treaty between Georgia and the country where most of your income is earned. If that country recognizes tax residency in Georgia, it’s possible that a large part of your income will not be taxed in any country.

We can help you establish tax residency in Georgia, allowing you to pay less in taxes each year on your current business activities. Set up a Strategy Call with us and we’ll determine whether we think you’re someone we’d like to do business with.

8 Comments

bartrand
on May 17, 2016 at 2:30 pm

Very helpful. Inspired in large part by previous posts here on Georgia, I am moving from Canada to Tbilisi with my family next month. The key factor is Georgia’s tax treaty with the US: so far as I can tell, it’s the only country in the world with both (a) a territorial tax system and (b) a tax treaty with the US where the IRS withholds 0%.

Now time has passed, can you share any problems you have encountered in Georgia regarding tax. Does the Georgian tax authority recognise/accept double tax treaty claims from the U.S. based on the 1973 U.S.S.R. treaty?

In this situation, the tax treaty is only relevant from the perspective of the U.S. tax authorities. The 1973 tax treaty means the IRS withholds 0% of U.S. earnings from Georgian tax residents instead of 30%. Georgia does not tax any foreign income, regardless of whether that income is earned in a country with which they have a tax treaty or not.

Hi @bartrand
How can I verify that Georgia will in fact not tax foreign source income from US from an official source? Also, would a georgian tax resident with foreign income from US have to file this income in income tax return in Georgia?

Amazing article – one word of caution for US citizens looking at the US-USSR tax treaty (currently still applicable with Georgia): it has a saving clause, which (for once) is written in regular English (pretty much all treaties have a savings clause – saving the US from extending treaty benefits to its own citizens, but it’s usually written in legalese).

Anyway, back to our US-USSR tax treaty, article VII:
“This Convention shall not restrict the right of a Contracting State to tax a citizen of that Contracting
State”

Great article! Thank you for sharing! I am looking into working (telecommuting) in Tbilisi, Georgia. What will be applicable to me as a resident of US and working for Company based in US, but on territory of Georgia?